nep-ban New Economics Papers
on Banking
Issue of 2019‒07‒29
eight papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Bank Assets, Liquidity and Credit Cycles By Lubello, Frederico; Petrella, Ivan; Santoro, Emiliano
  2. When the bank is closed, the cash is king; ... not! By Konstantinos Nikolopoulos; Konstantia Litsiou
  3. The benefits and costs of adjusting bank capitalisation: evidence from euro area countries By Katarzyna Budnik; Gaia Barbic; Giulio Nicoletti; Massimiliano Affinito; Fabrizio Venditti; Saiffedine Ben Hadj; Hans Dewachter; Edouard Chretien; Clara Isabel González; Javier Mencía; Jenny Hu; Jairo Rivera-Rozo; Lauri Jantunen; Otso Manninen; Ramona Jimborean; Ricardo Martinho; Ana Regina Pereira; Elena Mousarri; Constantinos Trikoupis; Laurynas Naruševicius; Michael O’Grady; Sofia Velasco; Selcuk Ozsahin
  4. Bank Survival in Central and Eastern Europe By Evžen Kočenda; Ichiro Iwasaki
  5. Tax avoidance - are banks any different? By Gawehn, Vanessa; Müller, Jens
  6. Competition and financial stability: a new paradigm By firano, zakaria; filali Adib, fatine
  7. Security design and credit rating risk in the CLO market By Dennis Vink; Mike Nawas; Vivian van Breemen
  8. Development banking, state of confidence and sustainable growth By Victor Manuel Isidro Luna

  1. By: Lubello, Frederico (Bank Centrale du Luxembourg); Petrella, Ivan (University of Warwick); Santoro, Emiliano (University of Copenhagen)
    Abstract: We study how bank collateral assets and their pledgeability affect the amplitude of credit cycles. To this end, we develop a tractable model where bankers intermediate funds between savers and borrowers. If bankers default, savers acquire the right to liquidate bankers’assets. However, due to the vertically integrated structure of our credit economy, savers anticipate that liquidating financial assets (i.e., loans) is conditional on borrowers being solvent on their debt obligations. This friction limits the collateralization of bankers’financial assets beyond that of real assets (i.e., capital). In this context, increasing the pledgeability of financial assets eases more credit and reduces the spread between the loan and the deposit rate, thus attenuating capital misallocation as it typically emerges in credit economies à la Kiyotaki and Moore (1997). We uncover a close connection between the collateralization of bank loans, macroeconomic amplification and the degree of procyclicality of bank leverage.
    Keywords: banking ; bank collateral; liquidity ; capital misallocation; macroprudential policy;
    JEL: E32 E44 G21 G28
    Date: 2019
  2. By: Konstantinos Nikolopoulos (Bangor University); Konstantia Litsiou (Manchester Metropolitan University)
    Abstract: In this research paper we investigate changes in payment media used from consumers as a result of extreme financial restrictions. The motivation comes from the summer of 2015 in Greece where after failure for an agreement between Greece and the Troika (EU, IMF and ECB) for an extension of lending support from the latter, the Greek government decided to close the banks for three weeks; and apply capital controls still in place ten months after the event - however gradually relaxed. Methodologically we adopted grounded theory and through this a fully qualitative and longitudinal study comprised of three series (every six months) of in-depth interviews with individual citizens (on behalf of their households) over a period of one calendar year. We aim to investigate research changes in payment media used during and after the period when the banks were closed, as well as permanent changes in consumer and social behavior. Acknowledging that with this methodological approach reaching statistical significant results is very difficult to be achieved, we do however seek and to a great extend provide insight in what really happened during and after the events, and one thing came out again and again: people turned more into the use of debit cards, and secondary to online banking and to a lesser extent to credit cards; the later came with an inevitable raise of household debt. Cash use was only temporarily increased and more evidently during the three-week event, while all the previous aforementioned results had of a more permanent nature, as illustrated from the longitudinal analysis.
    Keywords: Financial Crisis; Banks; Capital Controls; Households; Payment media;
    JEL: G0 G21 G28 H12 H31
    Date: 2019–07
  3. By: Katarzyna Budnik (European Central Bank); Gaia Barbic (European Central Bank); Giulio Nicoletti (European Central Bank); Massimiliano Affinito (Banca d’Italia); Fabrizio Venditti (Banca d’Italia); Saiffedine Ben Hadj (Banque Nationale de Belgique/Nationale Bank van België); Hans Dewachter (Banque Nationale de Belgique/Nationale Bank van België); Edouard Chretien (Autorité de contrôle prudentiel et de résolution); Clara Isabel González (Banco de España); Javier Mencía (Banco de España); Jenny Hu (De Nederlandsche Bank); Jairo Rivera-Rozo (De Nederlandsche Bank); Lauri Jantunen (Suomen Panki); Otso Manninen (Suomen Panki); Ramona Jimborean (Banque de France); Ricardo Martinho (Banco de Portugal); Ana Regina Pereira (Banco de Portugal); Elena Mousarri (Central Bank of Cyprus); Constantinos Trikoupis (Central Bank of Cyprus); Laurynas Naruševicius (Lietuvos Bankas); Michael O’Grady (Central Bank of Ireland); Sofia Velasco (Central Bank of Ireland); Selcuk Ozsahin (Banca Slovenije)
    Abstract: The paper proposes a framework for assessing the impact of system-wide and bank-level capital buffers. The assessment rests on a factor-augmented vector autoregression (FAVAR) model that relates individual bank adjustments to macroeconomic dynamics. We estimate FAVAR models individually for eleven euro area economies and identify structural shocks, which allow us to diagnose key vulnerabilities of national banking systems and estimate short-run economic costs of increasing banks’ capitalisation. On this basis, we run a fullyfledged cost-benefit assessment of an increase in capital buffers. The benefits are related to an increase in bank resilience to adverse shocks. Higher capitalisation allows banks to withstand negative shocks and moderates the reduction of credit to the real economy that ensues in adverse circumstances. The costs relate to transitory credit and output losses that are assessed both on an aggregate and bank level. An increase in capital ratios is shown to have a sharply different impact on credit and economic activity depending on the way banks adjust, i.e. via changes in assets or equity.
    Keywords: FAVAR, capital regulation, cost-benefit analysis, banking system resilience
    JEL: E51 G21 G28
    Date: 2019–07
  4. By: Evžen Kočenda (Institute of Economic Studies, Charles University, Prague); Ichiro Iwasaki
    Abstract: We analyze bank survival on large dataset covering 17 CEE markets during the period of 2007–2015 by estimating the Cox proportional hazards model. We group banks across countries and according to their financial soundness. Our results show that progress in banking reforms positively affects bank survival. During global financial crisis, banking reform progress is not linked with improved survival probability, though. On the other hand, during the European sovereign debt crisis and afterwards, banking reform progress contributes to improve survival probability substantially. The economic impact of various determinants is largest for average banks measured by their soundness. Financial indicators predict bank survival rate with intuitively expected impact that is economically less significant in comparison to other factors. Specifically, ownership structure and legal form are the key economically significant factors that exhibit strongest economic effect on bank survival. We further document importance of banks being listed with respect to their survival. We also show that probability of exit increases after number of directors increases beyond a threshold. The results are robust with respect to bank grouping, alternative model specifications, and alternative assumptions on survival distribution.
    Keywords: bank survival; banking reform; European emerging markets; survival and exit determinants; hazards model
    JEL: C14 D02 D22 G33
    Date: 2019–07
  5. By: Gawehn, Vanessa; Müller, Jens
    Abstract: While the public has noticed the need for the detection of potential tax loopholes and demand further improvement in the taxation of banks, there is scarce empirical evidence of whether banks' degree of tax avoidance actually differs from that of non-banks. We try to close this gap by investigating U.S. banks' tax avoidance behavior for a sample period from 2004 to 2016. To anchor banks' tax avoidance, we use annual Cash ETRs and GAAP ETRs and compare them to the tax avoidance behavior of non-banks. As there are various channels of tax avoidance, we account for differences in several areas such as corporate fundamentals, the degree of multinationality and regulatory scrutiny. We provide cautious evidence that banks have significantly larger Cash ETRs than non-banks. Via the use of quantile regression we find evidence that the assocation between banks and ETRs is not constant over the whole tax avoidance distribution, but shows a positive association for lower parts of the tax avoidance distribution and a negative association for higher parts. In line with recent research, we provide some evidence that the difference in Cash ETRs between banks and non-banks is more pronounced for worse-capitalized, than for better-capitalized banks.
    Date: 2019
  6. By: firano, zakaria; filali Adib, fatine
    Abstract: From the Nineties, the Moroccan banking system knew several reforms which contributed to the liberalization and the deregulation of banks. The objective is to arrive to a banking sector resilient, competitive, developed and making it possible to increase the surplus of the borrowers and the depositors. Although the relation between competition and financial stability is discussed, this paper proposes to formulate a new explanation of this relation while being based on the trilogy: competition, concentration and stability (CCS). Initially we develop the model of Panzar and Rose (1982,1987) to measure the competition of the dynamic banking system since 1993. Then, a data model of panel was estimated, highlighting the nonlinear relation between financial stability and banking competition. The checking of this relation made it possible to propose a new design concerning the relation between financial stability and competition. Indeed, the results obtained with through an optimization model affirm that this relation is cyclic, in the direction where, a stronger competition supports financial stability in situation of strong impact strength, on the other hand, in a situation of financial instability, more competition worsens the situation of the banking system.
    Keywords: financial stability, competition, concentration and banking system.
    JEL: D4 G2
    Date: 2018
  7. By: Dennis Vink; Mike Nawas; Vivian van Breemen
    Abstract: In this paper, we empirically explore the effect of the complexity of a security's design on hypotheses relating to credit rating shopping and rating catering in the collateralized loan obligation (CLO) market in the period before and after the global financial crisis in 2007. We find that complexity of a CLO's design is an important factor in explaining the likelihood that market participants display behaviors consistent with either rating shopping or rating catering. In the period prior to 2007, we observe for more complex CLOs a higher incidence of dual-rated tranches, which are more likely to have been catered by credit rating agencies to match each other. Conversely, in the period after 2007, for CLOs, it is more likely that issuers shopped for ratings, in particular opting for a single credit rating by Moody's, not by S&P. Furthermore, contrary to what market participants might expect, investors do not value dual ratings more than single ratings in the determination of the offering yield at issuance. Looking at the explanatory power of credit ratings for a dual rated CLO, the degree to which investors increase their reliance on credit ratings depends to a large extent on the disclosure of an S&P rating, not Moody's. This suggests that investors recognize credit rating risk by agency in pricing CLOs. In sum, the policy implication is that, to effectively regulate CLOs, the regulatory environment ought to differentiate between complex and non-complex CLOs.
    Keywords: collateralized loan obligations; credit ratings; security design complexity; rating shopping; rating catering
    JEL: G14 G24 G28 G32
    Date: 2019–07
  8. By: Victor Manuel Isidro Luna
    Abstract: This article outlines the role of three types of development banks (communal, national, and multilateral) in promoting sustainable growth and development in the future. The 2007-2008 crisis made clear the need for: (1) heavy investment in developed as well as peripheral countries, and (2) coordinated financial institutions at the local, national, and international levels. Given a historical and spatial context, development banks can adopt different types of ownership (public or private), can target a myriad of specific sectors, and can promote local and international cooperation. We argue that for sustainable growth to be achieved, “confidence” has to be provided by public financial institutions. In our analysis we follow post-Keynesian ideas, which, considering the use of money with “social responsibility,” are thought to match the ideas of other heterodox approaches.
    Keywords: Development Banks, 2007-2008 Crisis, State of Confidence, Post-Keynesian, Sustainable Growth
    JEL: G10 G20
    Date: 2019–07

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